Top story

Imperial Brands (IMB) has warned investors that a “challenging” US market for vaping products and weaker than expected performance in its Africa, Asia and Australasia business will hamper full year revenue and earnings growth.

In a pre-close trading update this morning, the FTSE 100 tobacco giant said group sales would be up 2% while earnings are expected to be broadly flat at constant currencies.

“Whilst this is disappointing for the current year, we believe that next generation products (NGP) provides a significant opportunity to deliver additive growth to complement our tobacco business,” the group stated. “We continue to refine our investment behind building a strong and profitable NGP business in a rapidly evolving market.”

Its overall NGP business will grow net revenue by around 50% this year, albeit below expectations.

It said the USA NGP environment has deteriorated considerably over the last quarter with increased regulatory uncertainty, including individual US state actions. This has prompted a marked slowdown in the growth of the vapour category in recent weeks, with an increasing number of wholesalers and retailers not ordering or not allowing promotion of vaping products.

Imperial stepped up retail engagement programmes in the USA in the second half, alongside a significant increase in brand investment and stronger consumer promotions. This has delivered improving consumer off-take for blu, albeit less than expected, reflecting the slowdown in the US vapour category combined with increased competitor discounting.

In Europe and Japan, it is seeing good NGP year-on-year growth, although following a successful build-out across our markets at the beginning of the year, second half sales in Europe are expected to be at a similar level to the first half.

“Given the evolving environment, we are also evaluating the effectiveness of our NGP supply chain, which may result in contract termination costs that are not included in our revised expectations,” it said.

Its tobacco business continues to deliver low single digit revenue growth and higher tobacco operating profit.

Good performance in Europe and the Americas, will more than offset tougher trading conditions in the AAA division.

In particular, Imperial increased investment behind share in Australia in a highly competitive environment, utilising a benefit from duty paid inventory around the September excise increase. However, the realisation of this benefit has been rephased into the next financial year, resulting in a stronger AAA divisional performance expected in 2020.

Imperial said its full year results will benefit from £30m of other gains, including a 2% boost from currencies, compared with £80m last year.

Imperial shares have sunk 9.6% to 1,867.4p on the news.

Morning update

Greencore (GNC) will host a capital markets day today to outline its investment case to investors.

During the day, Greencore will introduce a number of medium term financial ambitions, including mid single-digit organic revenue growth; high single-digit adjusted EPS growth; converting half of its adjusted EBITDA to free cash flow; and mid-teen return on invested capital.

In a pre-close statement Greencore said it expects full year adjusted EPS to be in line with market expectations of around 16p.

Pro forma revenue growth improved throughout Q4, despite subdued trading conditions in the early part of the quarter and a strong comparative period year on year.

Greencore also said the recent acquisition of Freshtime has pushed its net debt to EBITDA ration towards the upper end of its medium term target of between 1.5x to 2x.

Elsewhere, travel food specialist SSP Group (SSPG) has issued a pre-close trading update for the fourth quarter of its financial year ending 30 September 2019.

SSP said it had a good fourth quarter and made further progress on its strategic initiatives. Total group revenue is expected to increase by approximately 7.8% on a constant currency basis, comprising like-for-like sales growth of approximately 1.8% and net contract gains of approximately 6%.

At actual exchange rates, total group revenues for the period are expected to increase by approximately 10% year-on-year.

It said that trends seen in like-for-like sales growth in the third quarter have continued into the fourth quarter.

In the UK, the air sector has been fairly resilient over the fourth quarter, while rail has remained softer, albeit benefitting from a lower level of disruption in the rail network.

In Continental Europe, like-for-like sales continued to be held back by slower passenger growth and the impact of airport redevelopment in the Nordic countries and in Spain.

In North America, like-for-like sales growth has been affected throughout the quarter by the grounding of Boeing Max 737 aircraft and the transfer of passengers away from its terminals at some airports.

In the Rest of the World, like for like sales growth has been mixed with good performances in Egypt and the Middle East continuing to be offset, as anticipated, by the cessation of operations at Jet Airways in India, weaker Chinese passenger numbers and more recently the protests in Hong Kong.

For the full year it expects like-for-like sales growth to be just below 2.0%.

Net contract gains for the full year are expected to be just above our previous expectations, at around 5.5%, and as usual they will be accompanied by pre-opening costs. Net contract gains have been driven by significant growth in North America and Continental Europe and the recent commencement of operations in Brazil.

During the full year it expects currencies will add 1% to 2019 revenues compared to the 2018 average.

SSP said it has performed well “despite the many external challenges, particularly towards the end of the year”.

It said many of these challenges will remain in 2020, as well as ongoing economic uncertainty and the expectation of airline capacity cuts.

“That said, the diversity of the business and flexibility of the model leave us well placed to benefit from the significant structural growth opportunities in our markets and to create further value for shareholders,” the group stated.

PayPoint (PAY) has announced that its CEO Patrick Headon is taking a temporary leave of absence from the Company to receive treatment for a medical condition.

Headon is currently expected to be on leave for approximately three months.

The company’s chairman, Nick Wiles, has agreed to act as executive chairman to support the executive team during this period.

On the markets this morning, the FTSE 100 is up 0.5% to 7,323.3pts so far today.

Early risers include Bakkavor, up 1.7% to 117p, PayPoint, up 1.5% to 934p and Compass Group (CPG), up 1.3% to 2,048p.

SSP Group has slumped 5.8% in early trading to 629p.

Imperial and SSPG aside, fallers include British American Tobacco (BATS), down 3.2% to 2,832.5p, Marks & Spencer (MKS), down 2.5% to 117.5p and Morrisons (MRW), down 1.7% to 198.6p.

Yesterday in the City

After early falls the FTSE 100 recovered through the day to end trading flat at 7,290pts.

Sainsbury’s rose 1.6% to 216.5p after its second quarter sales performance improved to a like for like drop of 0.2% and it outlines a number of future strategic plans, including the opening of a net 80 convenience-focussed new stores.

Tobacco giants British American Tobacco (BATS) and Imperial Brands (IMB) rebounded after recent falls driven by moves against flavoured vaping in the US, rising 3.3% to 2,924.5p and 2.3% to 2,065.5p respectively.

Morrisons (MRW) rose 1.5% to 202p following the Sainsbury’s update, while other risers included McBride (MCB), up 1.8% to 50.6p, Bakkavor, up 1.1% to 115p and Reckitt Benckiser (RB), up 1% to 6,421p.

Fallers included Ocado (OCDO), down 3.1% to 1,299p, PZ Cussons (PZC), down 3.1% to 206p, McColl’s (MCLS), down 3% to 46.6p, Cranswick (CWK), down 3% to 2,930p and Marks & Spencer (MKS), down 2.4% to 182p.

Topics